Making Tax Digital (MTD) has been with us for years, and the next stage of its implementation – MTD for income tax – is a mere 21 months away now.
Now a change due in April 2026 might seem like it’s quite far off in the future – but what goes on your April 25 tax return, i.e. your income for the period from April 24 to April 25, will determine if you are included in the first wave of MTD for income tax.
So what do you need to know about this?
What is total gross income and why is it important?
Remember this wave of MTD is all about income tax. So it relates to self-employed income and rental income (but not partnership income, yet!).
The test that the taxman will apply is a simple threshold – is your total gross income before deducting expenses more than £50,000? (or more than £30,000)?
So, for example:
- If you are both self-employed and have rental income, it is the total of your gross income before deductions for both sources of income.
- If you are over this threshold, then you will be mandated to be part of MTD for income tax from April 2026.
- If your income is between £30,000 and £50,000, then you will be mandated to be part of MTD for income tax from April 2027.
What does this mean, I hear you ask? This means a whole different set of rules for submitting your tax information to HMRC. At present, you send one annual tax return to HMRC, but this will change…
| Need help with everything tax? Don´t hesitate to reach out to your friendly accountants at [email protected] |
The requirements of MTD for income tax
If you are mandated to use MTD for income tax, then you will be required to:
- Keep digital business records.
- Submit four quarterly updates of your business and or rental income and expenses, digitally.
- Submit an annual final tax declaration (i.e. a tax return) digitally.
Quarterly reporting periods and deadlines
Your quarterly updates need to be sent to HMRC digitally using MTD-compatible software. As accountants, we highly recommend Xero for this purpose.
The periods and deadlines for these quarterly updates are:
| Period covered | Filing deadline | |
| Quarterly update 1 | 1 April to 30 June | 7 August |
| Quarterly update 2 | 1 April to 30 September | 7 November |
| Quarterly update 3 | 1 April to 31 December | 7 February |
| Quarterly update 4 | 1 April to 31 March | 7 May |
| Final Declaration | 1 April to 31 March | 31 January |
Key points to consider
- Current income assessment: What is your income for the current period? This determines if you are mandated in April 2026, so be aware of how close to (or over) the threshold you become.
- Digital software setup: If you still need to start using Xero or similar digital software, now is the time to set it up. We can help you with the set-up so you are used to using it by the time you have to.
| Need help implementing and using MTD-compatible software? Get in touch with us at [email protected]. We can help you get used to using it by the time you have to. |
Potential changes
The MTD rules have changed since they were announced and it is always possible there will be more changes before they are sorted and put to bed. As accountants, we have our finger on the pulse when it comes to these changes, so we´ll let you know if and when they do, and how this will affect you and your business.
FAQs
- What happens if I miss a quarterly update deadline?
Missing a deadline could mean penalties from HMRC. So mark those dates and work with an accountant to help ensure timely filing.
- What if my income fluctuates above and below the threshold?
If your income likes to jump rope with the threshold, you might need to comply with MTD during the years your income is above the threshold. Getting professional advice can really help understand your obligations.
- Are there exemptions for MTD for income tax?
There are some ‘get out of jail free cards’! Certain businesses might dodge the MTD for income tax based on turnover, digital exclusion, or other criteria. You can check with HMRC or a tax professional to see if you qualify.
Be confident with MTD for income tax
MTD for income tax is approaching, and understanding your total gross income is key to knowing if and when you need to comply. By keeping digital records and using recommended software like Xero, you can ensure a smooth transition.
Have any questions or concerns about how MTD for income tax will affect you and your tax situation? Then get in touch with us at: [email protected]
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Our goal is to help you through these changes and to keep your tax affairs in order without the stress and worry of missed deadlines or fines. Have the confidence that you´re doing what you should when it comes to tax.
